What Was the Value of DoubleClick When Romney Gifted Shares to His Kids?

Jesse Drucker wrote on September 27:

In January 1999, a trust set up by Mitt Romney for his children and grandchildren reaped a 1,000 percent return on the sale of shares in Internet advertising firm DoubleClick Inc. If Romney had given the cash directly, he could have owed a gift tax at a rate as high as 55 percent … Romney or his trust received shares in DoubleClick eight months before the company went public in 1998. The trust sold them less than a year after the IPO … In January 1999, Romney’s trust sold $746,000 worth of DoubleClick shares, for a gain of about $674,000, or an almost 1,000 percent return

Via Brad DeLong we see that Daniel Shaviro claimed:

The extreme undervaluation certainly looks like tax fraud. Key evidence would be the close proximity of the valuation date and the sale date

What was the fair market value of this DoubleClick stock when Romney set up this trust fund? Drucker and Shaviro are certainly arguing that the fair market value was much higher than what was claimed at the time these shares were gifted. We should note, however, that the value of Doubleclick shares has had a controversial history even up to the time that Google purchased the company for over $3 billion during April 2007. About two years earlier, a private equity firm had purchased the company for just over $1 billion:

DoubleClick shareholders will get $8.50 in cash for every common stock share, a 10.6 per cent premium over the average closing price of the company's stock in the last thirty trading days. The valuation is very low compared to DoubleClick's valuation in its hey days.

We should also note that two people commented over at Brad’s place that stock valuations were quite volatile if not exuberant during the late 1990’s. Mind you that I’d be the last to cast doubt on this Drucker-Shaviro claim that Mitt Romney hired some hack appraiser:

But back to the estate attorney who has a Rolodex of appraisers who will give him any whore answer for the right fee. The appraiser/whore that is chosen to evaluate the fair market value of the business has three tricks up his (her) sleeve ... Doesn’t the IRS have their own appraisers that can effectively rebut the bogus valuation reports commissioned by the estate attorney? One would think so – but read most of the Tax Court decisions in this area and realize that even the National Review looks smart and honest by comparison.

Shaviro’s “Key evidence would be the close proximity of the valuation date and the sale date” reminds me of the “expert” testimony in Nestle v. Commissioner of the Internal Revenue Service which involved the value of the various Carnation trademarks and other intangible assets both at the time the U.S. affiliate of Nestle purchased Carnation (January 1985) and when this affiliate sold them to the Swiss parent, which was on April 30, 1985. Nestle had commissioned one appraiser to argue that the value of the intangible assets was approximately $425 million at both dates. The IRS, however, argued that the value of the intangible assets was only $175 million as of January 1985 but accepted the $425 million value for the intercompany sale price as of April 30, 1985. I’m sure if one wished to read the trial court decision which accepted the IRS view one could mock at the quality of analysis by both sides, and the Appeal Court ultimately rejected the IRS position for its own silly reasons. But note that the IRS never bothered to explain why the intangible assets in such a mundane industry could more than double in a period of less than four months. Which is to simply say – both sides often play games when it comes to valuations for tax purposes.